Welfare Economics and Giving for Development

Welfare Economics and Giving for Development

Welfare Economics and Giving for Development

The economics of welfare is at the heart of economics, but in recent decades welfare economics has been relegated to the sidelines. While economists routinely make policy recommendations, or statements about economic success or failure, they often do so without apparent awareness of the ethical foundations for their conclusions. Yet, the foundations for welfare economics are far from solid. The standard formulation imposes severe constraints on the information that is taken into account when making evaluative judgments. The adoption of a welfarist social welfare function rules out any information other than individual welfare. In this paper, I consider the implications for welfare economics of one specific issue: individual giving for world development. While giving for development is modest in total amount, it is one of the few direct ways in which individuals reveal information relevant to the properties of the social welfare function to be applied to global redistribution. I begin by examining individual motives for giving, arguing that giving for the specific purpose of development cannot be adequately explained by the standard models of “warm glow” or “public goods”. An alternative is proposed, where people “frame” their giving in a way that gives meaning to their individual contribution. This alternative may well take a non-welfarist form. I go on to consider the implications for the social welfare function. What are the implications, if any, for the social welfare function of individual altruism towards people in poor countries? Finally, I address explicitly the geographical dimension, and the fact that the social welfare is a national social welfare function, which has to take into account the limited “sphere of control” of national governments.

Abstract

The economics of welfare is at the heart of economics, but in recent decades welfare economics has been relegated to the sidelines. While economists routinely make policy recommendations, or statements about economic success or failure, they often do so without apparent awareness of the ethical foundations for their conclusions. Yet, the foundations for welfare economics are far from solid. The standard formulation imposes severe constraints on the information that is taken into account when making evaluative judgments. The adoption of a welfarist social welfare function rules out any information other than individual welfare. In this paper, I consider the implications for welfare economics of one specific issue: individual giving for world development. While giving for development is modest in total amount, it is one of the few direct ways in which individuals reveal information relevant to the properties of the social welfare function to be applied to global redistribution. I begin by examining individual motives for giving, arguing that giving for the specific purpose of development cannot be adequately explained by the standard models of “warm glow” or “public goods”. An alternative is proposed, where people “frame” their giving in a way that gives meaning to their individual contribution. This alternative may well take a non-welfarist form. I go on to consider the implications for the social welfare function. What are the implications, if any, for the social welfare function of individual altruism towards people in poor countries? Finally, I address explicitly the geographical dimension, and the fact that the social welfare is a national social welfare function, which has to take into account the limited “sphere of control” of national governments.